Shares of Nippon Life India Asset Management declined 6.92%, while shares of Nuvama Wealth Management plunged as much as 8.91%. 360 ONE WAM's stock price dropped 5.64%, while HDFC Asset Management Company's shares sank 6.39%.
After the Securities and Exchange Board of India (SEBI) suggested major changes to mutual fund regulations, shares of asset management businesses in India fell precipitously by as much as 9% in early trading on Wednesday. The suggested modifications include updated brokerage charge caps and a redesigned total expense ratio (TER) structure.Shares of Nippon Life India Asset Management declined 6.92%, while shares of Nuvama Wealth Management plunged as much as 8.91%. 360 ONE WAM's stock price dropped 5.64%, while HDFC Asset Management Company's shares sank 6.39%.
Declines of 3–4% were also experienced by other AMCs, such as Aditya Birla Sun Life AMC, the freshly listed Canara Robeco Asset Management Company, Anand Rathi Wealth, and UTI Asset Management Company.
Sebi Suggestions
The Securities and Exchange Board of India (SEBI) suggested doing away with the extra 5 basis points (bps) that AMCs were previously permitted to charge across mutual fund schemes in a consultation document published on October 28.
Declines of 3–4% were also experienced by other AMCs, such as Aditya Birla Sun Life AMC, the freshly listed Canara Robeco Asset Management Company, Anand Rathi Wealth, and UTI Asset Management Company.
Sebi Suggestions
The Securities and Exchange Board of India (SEBI) suggested doing away with the extra 5 basis points (bps) that AMCs were previously permitted to charge across mutual fund schemes in a consultation document published on October 28.
"However, the first two slabs of the expense ratio for open-ended active schemes have been revised upward by 5 bps to mitigate the impact of this change on the operations of AMCs," it continued.
In order to increase clarity and transparency, Sebi also changed the brokerage fee from 12 basis points to 2 basis points for cash market transactions and from 5 basis points to 1 basis points for derivative transactions.
Along with the current allowable charges for brokerage, exchange, and regulatory fees, Sebi also suggested removing all statutory levies, including STT (Securities Transaction Tax), GST (Goods and Services Tax), CTT (Commodity Transaction Tax), and stamp duty, from the expense ratio restrictions.
In order to increase clarity and transparency, Sebi also changed the brokerage fee from 12 basis points to 2 basis points for cash market transactions and from 5 basis points to 1 basis points for derivative transactions.
Along with the current allowable charges for brokerage, exchange, and regulatory fees, Sebi also suggested removing all statutory levies, including STT (Securities Transaction Tax), GST (Goods and Services Tax), CTT (Commodity Transaction Tax), and stamp duty, from the expense ratio restrictions.
It stated that an option to charge an expenditure ratio based on a scheme's performance has been added, and that AMCs would be free to choose to use it.
Additionally, Sebi has suggested streamlining eligibility requirements for fund sponsors, digitizing investor communications like annual reports, lowering the frequency of required trustee meetings to ease compliance, doing away with newspaper ads for scheme changes in favor of online disclosures, and getting rid of redundant reporting.
Effects on AMCs
Because of the extensive changes to mutual fund fee structures, analysts have cautioned that the profitability of asset management firms may be negatively impacted.
Additionally, Sebi has suggested streamlining eligibility requirements for fund sponsors, digitizing investor communications like annual reports, lowering the frequency of required trustee meetings to ease compliance, doing away with newspaper ads for scheme changes in favor of online disclosures, and getting rid of redundant reporting.
Effects on AMCs
Because of the extensive changes to mutual fund fee structures, analysts have cautioned that the profitability of asset management firms may be negatively impacted.
According to Jefferies, HDFC Asset Management Company and Nippon Asset Management could see a 30%–33% decrease in profit before taxes in 2027 as a result of the decision.
According to Motilal Oswal Financial Services (MOFSL), the elimination of an extra 5 bps TER may affect distributors if the AMCs reduce commissions to make up for the loss, or it may affect the earnings of AMCs if they absorb the hit. It will lower the TERs for customers.
According to Motilal Oswal Financial Services (MOFSL), the elimination of an extra 5 bps TER may affect distributors if the AMCs reduce commissions to make up for the loss, or it may affect the earnings of AMCs if they absorb the hit. It will lower the TERs for customers.
"Anand Rathi, 360 One Wam, and Nuvama may face a decrease in earnings if the distributors' commissions are reduced. According to our calculations, Anand Rathi's profits may be negatively impacted by 4.8% if commissions were decreased by 5 basis points. If mutual fund commissions are reduced, 360 One's earnings would be negatively impacted by almost 2%, whereas the AMC's 5 bps damage would be less than 0.5%, according to MOFSL.
It further stated that Prudent will be able to pass the commission hit on to the distributors.
It further stated that Prudent will be able to pass the commission hit on to the distributors.
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